The rule of law and digital constitutionalism

2009.03.02

Participation in virtual communities is said to be governed by the contractual documents written by the proprietors and 'agreed' to by the participants. In a system where governance is controlled by contract, then the limits of contract are essentially constitutional principles. Where, then, can we find the limits that we will impose on contractual governance?

This question marks the beginning of the next chapter of my PhD thesis. I am still working my way through these concepts, but my starting point is Brian Fitzgerald's argument that

[t]raditionally, constitutionalism (which means the regulation of power) has focused on regulating or limiting the vertical exercise of government or public power over the citizen. On the other hand, the horizontal exercise of power between citizens has occurred in the private sphere and has been rarely analyzed in terms of power or constitutionalism, although the (largely common) law has played a mediating role.”1)


Fitzgerald concludes that “[p]ower relations in the private sphere […] are fundamental constitutional issues that should be informed by fundamental constitutional principles”.2)

Coming back to the question of interpretation and enforcement of standard form contracts, Fitzgerald's argument echoes the point made by Sir Anthony Mason and S J Gageler in a 1987 article in P D Finn's collection Essays on Contract, where the authors argued that the limits of contract were fundamentally important questions of public policy:

The role of public policy in the formulation and application of contract rules has also tended to be understated. At root, public policy is inherent in the notion of legal adjudication. A court order for the enforcement of a contract does not simply allow the parties to pursue their own freely chosen course of conduct. It brings the full power of the state to bear against one party in the service of another. When and how this should be done are necessarily important questions of public policy.3)


Margaret Jane Radin argues that the rise in contractual governance has led to the public law of the state being replaced by the private law of powerful corporations.4) In virtual communities, this is largely true; as virtual communities become more important as the places where individuals live their lives, their lives are essentially governed by the terms of the proprietors of those platforms. In these circumstances, it may be appropriate to impose limits on the exercise of power by those proprietors in line with our fundamental constitutional values.

Radin and Wagner, in a separate article, suggest that there is an urgent question of legitimacy in the trend towards private governance:

The ideal of “private ordering” in cyberspace excites many people. Because the commercial environment is now global, but legal sovereignties are still territorial, it is unclear how (or if) cyberspace will be structured and governed. In these circumstances, because of the continued force of laissez-faire ideology, some people hope to finesse the question of territorial jurisdiction – sovereignty – with global “private ordering.” If private ordering means legally enforceable contract, this hope is chimerical. The hope flourishes because the legal realist insight has been suppressed. But once the legal realist insight is revived, we can see there is an urgent question of how the institutions of contract and property in cyberspace will be shaped and patrolled. There is an urgent question of sovereignty: who will do the shaping and patrolling?5)


Radin and Wagner go on to suggest that the limitations we require in governance “such as duress, fraud, and due process – have to come from somewhere and be enforced somehow. By now we know (or should know) that they do not come from self-enforcing natural law.”6)

Radin and Wagner are concerned about the increasing lack of legitimacy in relationships governed by private contract, and the corresponding risk to vulnerable citizens.1 Essentially, the concern seems to be that governance by private institutions, which increasingly resembles law, is not subject to the rule of law. Radin and Wagner conclude that

Internet proponents' best hope is for a process of evolution toward a regime in which there is enough harmony about the minimal standards of background due process and public policy limits so that all players, on and off the Internet, will understand and accept them. If such harmony could emerge, it would allow stable self-enforcement on the Internet, in the shadow of possible appeal to territorial sovereigns. We certainly have not reached such harmony yet. The needed background baseline of due process and public policy limits has a better chance of developing if participants do not obscure the understanding that contractual ordering cannot exist without it.7)


If we believe this argument, it becomes important to determine where the 'baseline of due process and public policy limits' comes from. To an extent, I think it comes partly from the rule of law. Lon Fuller, in the Morality of Law, provided eight principles that he believed were necessary for a society aspiring to the rule of law, including that the rules be clear and consistently enforced.

One of the greatest problems I see with governance of virtual communities is that the rules are not clear and consistent – they fail the procedural requirements for a morally legitimate system. I don't think that this means that virtual communities necessarily ought to be held to the same standards as legal systems – I am always reminded of Richard Bartle's warning that we need to allow completely arbitrary games. But for some communities, we may expect some degree of procedural fairness, of clarity and consistency. Justice Heydon described the rule of law as tightly linked with preventing private coercion – “as a bar to untrammelled discretionary power”:

Under the ‘rule of law’ as the expression is used below, it is not possible, at least without explicit parliamentary legislation to the contrary, for most important material or personal interests of one citizen to be radically damaged against that citizen’s wishes by another citizen, a corporation, or an arm of government unless some independent person holds that that is right. The rule of law prevents citizens being exposed to the uncontrolled decisions of others in conflict with them. Powerful citizens are not permitted to use self-help against other citizens so far as their arbitrary might permits. […] The rule of law operates as a bar to untrammelled discretionary power. It does so by introducing a third factor to temper the exposure of particular citizens to the unrestrained sense of self-interest or partisan duty of other citizens or institutions — an independent arbiter not affected by self-interest or partisan duty, applying a set of principles, rules and procedures having objective existence and operating in paramountcy to any other organ of State and to any other source of power, and possessing a measure of independence from the wrath of disgruntled governments or other groups. These independent arbiters are usually judges. The rule of law preserves for citizens an area of liberty in which they can live their lives free from the raw and direct application of power. It creates a framework within which the creative aspects of human life can thrive. The rule of law dilutes power; it diffuses it; and yet it also makes it more efficient.

[…]

The more ineffective a State’s laws are against private coercion or anarchy or government power, the less they can be described as representing the rule of law.8)


I think that this is correct. I agree with Radin and Wagner that the diverse rulesets of virtual communities can be empowering and useful if they are backed by limitations based upon our best judgments as to when we need to act to prevent harm to participants. I think that, at least to an extent, and at least for some communities, those limitations can be inspired by our understanding of what is required by the rule of law, in order to ensure that participants are not exploited by stronger proprietors.

I think it is very interesting that sites like Facebook are now finding themselves constrained in the imposition of terms of service by the will of their subscribers. I think that this is heartening – it certainly shows that participants do have power in aggregate. I don't think that this, however, proves the cyber-libertarian assumption that regulation is unnecessary because proprietors will be forced to be responsive to the demands of their users or that the users will be able to find other, more suitable communities. There will always be cases where the community is not sufficiently offended by the terms to force a policy change – particularly when terms are only enforced against minority groups or weaker individuals, for example. For these cases, for legitimate governance, we need some limits. I'm not sure that our conceptions of the rule of law is the best source for those limits, as it is obviously not directly transposable, but it provides an interesting starting point. What do you think?

1)
Brian Fitzgerald, 'Software as Discourse: The Power of Intellectual Property in Digital Architecture' (2000) 18 Cardozo Arts & entertainment Law Journal 337, 382.
2)
Brian Fitzgerald, 'Software as Discourse: The Power of Intellectual Property in Digital Architecture' (2000) 18 Cardozo Arts & entertainment Law Journal 337, 384.
3)
Hon Sir Anthony Mason and S J Gageler, “The Contract”, in P D Finn (ed) “Essays on Contract” (1987) Law Book Company Ltd, 1, 2.
4)
Margaret Jane Radin, Regulation by Contract, Regulation by Machine (2004) 160 JITE 1.
5)
Radin, Margaret Jane; Wagner, R. Polk , 'Myth of Private Ordering- Rediscovering Legal Realism in Cyberspace, The' (1997-1998) 73 Chi.-Kent L. Rev. 1295, 1296.
6)
Radin, Margaret Jane; Wagner, R. Polk , 'Myth of Private Ordering- Rediscovering Legal Realism in Cyberspace, The' (1997-1998) 73 Chi.-Kent L. Rev. 1295, 1297.
7)
Radin, Margaret Jane; Wagner, R. Polk, 'Myth of Private Ordering- Rediscovering Legal Realism in Cyberspace, The' (1997-1998) 73 Chi.-Kent L. Rev. 1295, 1317.
8)
Heydon, 'Judicial activism and the death of the rule of law' (2003) 23(2) ABR 110-2.
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EULAs and incorporation by signature

2008.07.24
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Statutes of interration revisited

2008.07.24
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Does Google Maps owe you a duty of care?

2008.07.24
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EULAs and incorporation by notice

2008.03.15

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Most EULA and ToS documents now require the participant to 'accept' the document by checking a box or clicking a button before continuing. If this is accepted to be equivalent to signing the contract, then the terms of the documents will generally be incorporated regardless of whether the participant has actually read them or not (absent any misleading conduct).1) However, if clicking an 'I agree' button is not treated as equivalent to signing a contract, and is instead considered more analogous to the ticket cases (incorporation by notice), terms will only be incorporated where the drafting party can show that he or she has taken reasonable steps to bring the clause to the attention of the other party.2) What is reasonable, of course, depends on the circumstances and on the clause itself.

Most of the ticket cases concern exclusion clauses. It appears likely, however, that it is the unusualness, severity, or unreasonableness of the clause which is important, rather than the strict type of clause. Lord Justice Denning (as he then was), in J Spurling Ltd v Bradshaw, noted, obiter, that

the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.3)


Lord Denning MR had an opportunity to develop this reasoning in Thornton v Shoe Lane Parking Ltd, where the Queen's Bench was asked to determine whether an exclusion provision referenced on a pillar upon entering a car park and again in small print on a ticket dispensed by an automatic parking machine was validly incorporated in the contract. His Lordship held that it was not, because the ticket was issued after the contract was formed;4) however, he noted, obiter, that if this were not the case, then the customer would be “bound by the exempting condition if he knows that the ticket is issued subject to it; or, if the company did what was reasonably sufficient to give him notice of it.”5) Lord Denning appeared to recognise that the more onerous the provision, the greater the requisite notice must be – in the instant case, the limitation was
so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way.6)

In the same case, Megaw LJ applied a test of whether or not unusual terms had been “fairly brought before the notice of the accepting party”.7) His Lordship held that

at least where the particular condition relied on involves a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being, in the words of Mellish LJ, “reasonably sufficient to give the plaintiff notice of the condition,” depends upon the nature of the restrictive condition.8)


This principle was explicitly considered by Brennan J in the High Court in Oceanic Sun Line Special Shipping Co Inc v Fay, where His Honour said that

where an exemption clause is contained in a ticket or other document intended by the carrier to contain the terms of carriage, yet the other party is not in fact aware when the contract is made that an exemption clause is intended to be a term of the contract, the carrier cannot rely on that clause unless, at the time of the contract, the carrier had done all that was reasonably necessary to bring the exemption clause to the passenger's notice9)


In Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1991) 22 NSWLR 1, Kirby P (as he then was) considered that there was a “responsibility to bring unusual conditions at least to the notice” of passengers of a cruise ship – it was the unusualness of the limitation clauses, combined with the failure to alert passengers that they ought to make their own arrangements for insurance, which meant that simply stating that the contract was subject to terms and conditions was not sufficient notice.10) Similarly, it was the “subject matter and content of the relevant limitation clauses”11) which “significantly limit[ed] the appellants common law liability”12) that determined the requisite level of notice for Gleeson CJ (as he then was) in the same case. Chief Justice Gleeson concluded that “it is the fact, and extent, rather than the precise mechanics, of the limitation that are of primary importance.”13)

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, the Queen's Bench did not accept that the reasoning of Shoe Lane Parking was limited to exclusion clauses, Dillon LJ holding that

what their Lordships said was said by way of interpretation and application of the general statement of the law by Mellish L.J. in Parker v South Eastern Railway Co, 2 CPD 416, 423-424 and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party.14)


Lord Justice Dillon extended the decision in Shoe Lane Parking to the general principle that

where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party.15)


Lord Justice Bingham reached the same conclusion, holding that

what would be good notice of one condition would not be notice of another. The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound must in all fairness be given.16) at “a very high and exorbitant rate”,17) which resulted in “an inordinate liability.”18) Indeed, the both judges in this case apparently would have held that the offending clause was void as a penalty clause, but the argument was not raised at first instance or upon appeal.19) In the circumstances, the Queen's Bench had no difficulty substituting a quantum meruit for the subject matter of the contract.20) Interfoto has not, however, been greatly extended in the two decades since it was decided.


The ticket cases are interesting for our purposes. They show a line of authority which suggests that where a person does not read a contract (and is not reasonably required to read the contract) then any surprising terms must be reasonably brought to their attention before they will be bound. These cases suggest that it must be possible to contract without reading the whole terms, and that it is the responsibility of the drafter to make surprising or unusual terms stand out. They are likely to be negated, however, where the contract has been signed.21)

The interesting point to draw from this line of cases is that if, for some reason, the ticket cases can be extended to cover click-wrap contracts (ie., the terms are sought to be incorporated by notice rather than by assent), then there is support for the proposition that surprising and unusual terms should be specifically brought to the attention of the participant, without the need to imply a duty of good faith. This in turn is interesting, because it particularly accords with the Karl Llewellyn's theory of Blanket Assent.

1)
L'Estrange v F Graucob Ltd [1934] 2 KB 394; Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805.
2)
Parker v South Eastern Railway Co (1877) 2 CPD 416; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163.
3)
Ibid, 466 (Denning LJ).
4)
Ibid, 169 (Denning MR).
5)
Ibid, 170 (Denning MR).
6)
, 13)
, 17)
Ibid.
7)
Ibid, 172 (Megaw LJ), quoting Hood v Anchor Line (Henderson Brothers) Ltd [1918] AC 837, 846, 847.
8)
Ibid 172-3 (Megaw LJ, citations removed).
9)
Ibid, 228-9 (Brennan J; Wilson, Deane, Toohey and Gaudron JJ not deciding).
10)
Ibid, 24-5; cf Mahoney JA (dissenting).
11)
Ibid, 8.
12)
Ibid, 8-9.
14)
Ibid, 438 (Dillon LJ).
15)
Ibid, 427 (Dillon LJ).
16)
Ibid, 443.)
In Interfoto, a fee clause was held to be a “very onerous clause”,((Ibid, 438 (Dillon LJ).
18)
Ibid, 445 (Bingham LJ).
19)
Ibid, 436 (Dillon LJ), 446 (Bingham LJ).
20)
Ibid, 439 (Dillon LJ), 445 (Bingham LJ).
21)
Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369, 1380 [41] (Arden LJ, obiter suggestion that the rule in Interfoto would not apply to signed contracts).
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